Little Debbie Maker McKee Foods Expected to Take Drake's Cakes

Twinkies still up for grabs in Hostess brand selloff

COLLEGEDALE, Tenn. -- Hostess has picked the maker of Little Debbie as the lead bidder to buy its Drake's cakes, reported the Associated Press. According to a filing in U.S. bankruptcy court, McKee Foods has offered $27.5 million in cash for the cake brands, which include Devil Dogs, Ring Dings, Funny Bones and Yodels.

United States Bakery Inc., also known as Franz Family Bakery, is expected to bid about the same amount for Hostess bread brands including Sweetheart, Eddy's, Standish Farms and Grandma Emilie's, a source told Reuters.

The "stalking-horse" bids by McKee and Franz would set the floor for an auction process that lets competitors make better offers, said the news agencies. A judge would have to approve the final sales.

McKee Foods, Collegedale, Tenn., makes a variety of snack cakes under the Little Debbie banner that compete with Hostess cakes at a lower price. For example, its Cloud Cakes resemble Twinkies and its Devil Cremes resemble Devil Dogs.

McKee generates about $1.1 billion in sales a year, with its Little Debbie cake division accounting for $800 million of that, according to the company. In recent years, McKee has seen its sales remain flat or fall as eating habits have changed.

With seven bakeries in the Northwest, Seattle-based Franz already produces breads, rolls and cookies under its own name as well as Holsum Hearth and Seattle International.

Hostess Brands Inc., Irving, Texas, announced in November that it was
shutting down its business and selling its breads and snack cakes. The company's demise came after years of management turmoil and turnover, with workers saying the company failed to invest its brands. Hostess filed for its second Chapter 11 bankruptcy in less than a decade this January, citing costs associated with its unionized workforce.

Still outstanding is Hostess's iconic Twinkies brand. The company's lawyer said last week that Hostess was in advanced discussions with a number of parties for the remainder of its snack business, including Twinkies.